Statistics from the Ministry of Commerce (MOFCOM) show that from January to August, China’s actual foreign capital use totaled 619.78 billion yuan ($90.8 billion), up 2.6 percent compared to last year. Most striking is the figure for August, which stood at 84.13 billion yuan ($12.4 billion), growing 18.7 percent year on year. Amid the novel coronavirus disease (COVID-19) pandemic that is ravaging the globe, many countries have seen a sharp decline in foreign capital inflows, but China is amazingly bucking the trend.
That is not to say that it doesn’t face many difficulties in attracting foreign investment, not only because the pandemic is limiting people’s travel, but also because some politicians in the U.S. and Australia are relentlessly denigrating China by dint of the virus.
Unable to tame the pandemic itself, the U.S. has suffered a plunge in foreign investment, leading many economists to predict that this year China may overtake the U.S. as the top absorber of foreign capital.
Meanwhile, the U.S. has adopted measures to curb China on all fronts, harming China’s interests in international markets and the global supply chain. However, even this has failed to dampen international investors’ strong interest in China. Three reasons can explain this tendency.
First, foreign capital covets the Chinese market thanks to China’s efforts to stabilize foreign investment. In order to promote economic growth, it has taken effective measures to keep employment, the financial sector, foreign trade, foreign and domestic investments and expectations stable. President Xi Jinping is personally overseeing the coordination of COVID-19 epidemic prevention and control and social and economic development, which has helped stabilize foreign investment.
The government has adopted a series of policies to stabilize the stock of foreign investment and increase it at both the macro and micro levels. In addition, foreign investment projects worth more than $100 million are guaranteed, with extra services at every step of the process in order to better cushion the blow from the pandemic.
Second, with China’s economy reopening, the Chinese market is emerging as a refuge for foreign capital. The impact of COVID-19 on the Chinese economy and society lasted only three months, and since April, economic activities have begun to return to form, which has strengthened foreign investors’ confidence in China.
So far, the Chinese economy is outperforming other world economies across the board, pushing up foreign investors’ expectations. In fact, China has become a vital refuge for U.S. companies since it overcame COVID-19 because its rebounding consumer economy has helped offset the damage from tumbling sales back home, according to an article in a Wall Street Journal in early August. U.S. companies like Sketchers and Nike stressed that it was China that tided them over the hardest three months of the pandemic for the latest quarterly earnings season.
Third, China’s improving business environment has made foreign investment procedures more convenient, thus persuading more investors to come to China. The Foreign Investment Law, along with its supportive regulations, which took effect this year, is even more hands-off and makes inbound investment more convenient. The fundamental momentum of long-term economic stability and development remains.
Moreover, China still boasts comprehensive competitive advantages in terms of supportive industries, human resources and basic infrastructure. It continues expanding opening up and optimizing the business environment.
According to statistics from MOFCOM, in the first eight months of the year, foreign investors set up nearly 20,000 companies in China, with Japan, the U.S., the Republic of Korea, Singapore, the UK and Germany contributing the most. Service and hi-tech companies are especially welcome in China, and therefore investment in the service industry, particularly in the hi-tech service industry, had the biggest share of investment in this period. Actual foreign capital use in the service industry grew by 12.1 percent year on year, while in the hi-tech service industry, it jumped by 28.2 percent, with most made in development and design services surging by 47.3 percent and in professional services by 111.4 percent.
Some countries and regions have been interfering excessively with the global supply chain and trying to discourage their domestic companies from investing in China by providing fiscal subsidies and tax relief, and forcing them to leave China. Some politicians are touting “de-Sinicization” of the supply chain. However, the increase in foreign investment against these headwinds testifies to the fact that China remains the major investment destination for most transnational companies.